Famous Dave's of America Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 6, 2024

There are 7 speakers on the call.

Operator

Good morning, everyone, and thank you for participating in today's conference call to discuss Dave's Financial Results for the Q2 ended June 30, 2024. Joining us today are Dave's CEO, Mr. Jason Wilk and the company's CFO, Mr. Kyle Baumann. By now, everyone should have access to the Q2 2024 earnings press release, which was issued yesterday.

Operator

The release is available in the Investor Relations section of Dave's website at https: /investors. Dave.com. In addition, this call will also be available for webcast replay on the company's website. Following management remarks, we'll open the call for your questions. Certain comments made on this conference call and webcast are considered forward looking statements under the Private Securities Litigation Reform Act of 1995.

Operator

These forward looking statements are subject to certain known and unknown risks and uncertainties as well as assumptions that could cause actual results to differ materially from those reflected in these forward looking statements. These forward looking statements are also subject to other risks and uncertainties that are described from time to time in the company's filings with the SEC. Do not place undue reliance on forward looking statements, which are being made only as of the date of this call. Except as required by law, the company undertakes no obligation to revise or update any forward looking statements. The company's presentation also includes certain non GAAP financial measures, including adjusted EBITDA as supplemental measures of performance of our business.

Operator

All non GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with SEC rules. You'll find reconciliation rec charts and other important information in the earnings press release and Form 8 ks furnished to the SEC. I would now like to turn the call over to Dave's CEO, Mr. Jason Wilk. You may begin.

Speaker 1

Thank you, and good morning, everyone. We continued to outperform expectations in the 2nd quarter, delivering 31% revenue growth and materially improved profitability compared to the year ago period. This marks our 3rd consecutive quarter of accelerating year over year revenue growth, which we accomplished while managing to reduce operating expenses for the 5th consecutive quarter. This resulted in achieving another record quarter of adjusted EBITDA. Given our performance year to date and strong outlook for the remainder of the year, we are raising the bottom end of our revenue guidance and increasing adjusted EBITDA guidance for 2024.

Speaker 1

This upper revision is further supported by continued growth in our monthly transacting member base, which reached 2,300,000 members. Turning to the Q2, I'd like to share more about our continued progress in executing on our growth strategy. This includes efficiently acquiring new members, engaging them through extra cash and deepening our relationships through the Dave card. Our commitment to efficient member acquisition is paying off as we continue to reduce marketing spend when compared to year ago periods yet still expand our multi transacting member base as I'll discuss in more detail in a moment. In the Q2, we acquired 3% fewer members relative to the year ago period, but with nearly 30% less marketing investment.

Speaker 1

This is driven by a 26% year over year decrease in CAC to $15 as we continue to optimize our marketing ROI in pursuit of profitable growth. On a sequential basis, we ramped up marketing spend by 18% to capitalize on the seasonal demand pattern for extra cash while reducing CAC by 7% at this higher level of investment. As we navigate an election year, we are closely monitoring its potential impact on customer acquisition costs. While we didn't observe election impacts in Q2, nor have we thus far in Q3, we'll remain disciplined as November nears to ensure our marketing investments achieve or exceed our internal return hurdles. The environment for member acquisition has remained constructive in Q3, which adds to our confidence in sustaining efficient growth at higher levels of scale.

Speaker 1

The second pillar of our growth strategy is to drive greater MTM engagement while using our Extra Cash product as the primary entry point of our member journey. This focus has yielded impressive results with MTM growing 18% year over year to a record 2,300,000 members. Our focused efforts to strengthen new member conversion, existing member retention and dormant member reactivation contributed meaningfully to this growth. Given the size and consistent growth of our member base as well as how our product capabilities have been expanding, we have been evaluating additional potential sponsor banks since late last year in an effort to diversify our key partner relationships. Dave is an attractive partner opportunity for the many reputable and qualified sponsored banks in the market given our scale and growth trajectory.

Speaker 1

These discussions have been constructive thus far and we will report back when we have material updates on our progress. Extra cash delivered another strong quarter with originations reaching 1,200,000,000 dollars Originations grew 37% year over year and 13% sequentially, driven by our Cash AI underwriting engine and reflecting strong continued demand for extra cash coming out of the seasonally softer tax refund season in Q1. Despite the solid growth, our net receivables portfolio totaled just $128,000,000 at quarter end. We believe this highlights the short duration, high velocity nature of our product, which allows us to serve a vast number of everyday Americans without the need for a capital intensive balance sheet. Cash AI enables us to expand access to liquidity for our members and increase average disbursement amounts without compromising credit performance.

Speaker 1

In Q2, we continued to improve our 28 day delinquency rate to 2.03%, down 80 basis points year over year. This equates to 28% improvement in credit performance over a period where we accelerated extra cash origination volume growth for the 3rd consecutive quarter. We also rolled out a new underwriting model throughout the Q2, which further optimizes the data used to manage credit risk within our Cash AI underwriting engine. Credit performance has remained strong thus far in Q3, which we expect to continue in part because of the full quarter's benefit from this new model. The 3rd and final pillar of our growth strategy is to foster deeper member relationships through DaveCard engagement.

Speaker 1

We believe offering quicker, more cost effective extra cash transfer to the DAVE card is an efficient way for us to drive trial with the DAVE card. This trial is an important step in building the trust required to win direct deposits, which can generate 5 to 6 times higher bank ARPU relative to non DD users. Our DAVE card continues to demonstrate strong performance with spending volume climbing 28% year over year to reach $388,000,000 in the 2nd quarter. There is an untapped potential to further elevate this metric as we strategically incentivize direct deposit adoption. Please note, we are no longer reporting out on average transaction per MTM as we believe DaveCard spending per MTM, which can be calculated from our existing disclosure, is also a sufficient proxy for member engagement in our banking product.

Speaker 1

Our combined efforts in ExtraCash, DaveCard and subscriptions yielded a strong 11% year over year increase in ARPU during the Q2 due to improvements in both Extra Cash Engagement and monetization as well as growth in DaveCard ARPU. Sequentially, ARPU increased 7% from Q1 as extra cash ARPU normalized coming out of a tax refund season, would typically experience a seasonally lower demand for extra cash. I am proud of the positive impact we have had on our members' financial lives as well as our Dave team who remains dedicated to serving the majority of Americans poorly served by incumbent banks, including those early in their banking journey and those living paycheck to paycheck. Our strategic focus remains on increasing customer value, expanding our member base and leveraging our disruptive technology to drive operational efficiency. We look forward to delivering exceptional value to our members and shareholders as we further solidify Dave's position as a premier banking solution for everyday Americans.

Speaker 1

With that, I'll turn the call over to Kyle and take you through our financial results. Kyle?

Speaker 2

Thank you, and good morning, everyone. As Jason highlighted, we continue to demonstrate the strength and scalability of our business during the Q2, where our results represent new high watermarks across all key metrics. We achieved substantial operating leverage by accelerating revenue growth and remaining disciplined with our fixed cost base, which we believe has been further supported by our internally developed Cash AI underwriting engine and our AI enabled chatbot called Dave GPT. As you may recall, we raised our full year adjusted EBITDA guidance during the Q1 based on the strong performance in that period. During the Q2, we continue to execute well, enabling us to once again raise adjusted EBITDA guidance for the full year.

Speaker 2

Q2 revenue reached $80,100,000 representing a 31% year over year increase. This was fueled by 18% growth in MTMs and ARPU expansion of 11%. New member acquisition remained efficient, allowing our marketing dollars to go farther, while improved retention and reactivation further boosted our MTM base. The ARPU increase was due to both increased extra cash utilization as well as stronger engagement with the Dave card. Non GAAP variable profit in Q2 increased 57% on a year over year basis to 51,800,000 dollars representing a 65% margin relative to GAAP revenue, up approximately 1100 basis points from Q2 of last year.

Speaker 2

Our sustained improvements to variable margin have been driven largely by the continued optimization of our Cash AI underwriting engine, which has ingested the credit performance of over $105,000,000 unique extra cash transactions since our inception. We believe this continues to expand the competitive advantage we have in evaluating portfolio risk. The resulting improvement in credit loss experience has also allowed us to reduce loss rates while increasing the revenue we generate per extra cash origination. Additionally, our variable margin performance in Q2 was bolstered by the progress we made in 2023 and optimizing payment processing costs and a key vendor contract we renegotiated in Q4 of last year. Now turning to 2nd quarter operating expenses.

Speaker 2

Our provision for credit losses improved, decreasing approximately 9% year over year to $14,400,000 while extra cash originations grew by 37% over that time. As a percentage of extra cash originations, the loss provision fell to 1.2% from 1.8% in the prior year. We believe these positive results underscore the effectiveness of our Cash AI underwriting system. As Jason noted, credit performance in Q3 remains strong thus far, which we expect to persist going forward. Despite the conviction we have in our credit performance, we anticipate our provision for credit losses to increase in Q3 and Q4 relative to Q2, both in absolute dollars and as a percentage of extra cash originations due to the calendar dynamics related to the day of the week on which the next two quarters end.

Speaker 2

Typically, extra cash disbursements are highest over the weekend days, which causes the extra cash receivables to peak on Mondays Tuesdays. Extra cash settlements are typically highest on Thursdays Fridays, which causes the receivables balance to trough on Fridays. Given that Q3 and Q4 end on a Monday Tuesday, respectively, we expect higher receivables balances at those quarter ends even after adjusting for our expectation of continued growth in extra cash originations. The higher expected receivables balance will likely drive a higher reserve for unrecoverable advances, resulting in a correspondingly higher provision for credit losses. Staying on the topic of credit performance, it's important to understand how our 28 day delinquency rate develops into a charge off rate, which is different for extra cash relative to other financial products that are revolving in nature or paid off in multiple installments.

Speaker 2

Extra cash receivables are charged off for accounting purposes and instances where they remain uncollected for 121 days since the disbursement date. For example, the most recent quarterly vintage that has fully developed into 121 or more days since disbursement is Q4 of 2023. The 28 day delinquency rate for that vintage was 2.19% and the ultimate static pool charge off rate for that same quarterly vintage was 1.44%, which excludes the double digit percentage of recoveries we typically generate after the point of accounting charge off. While assessing charge offs relative to the gross receivables balance may make sense for financial products which are evolving or those with multiple installments, we believe this approach can be misleading for a product such as Extra Cash, which involves a single repayment. The single repayment model used for extra cash implies that all receivables which are paid fall out of the gross receivables balance, whereas in the case of revolving or installment based products, the remaining principal would persist within the gross receivables balance.

Speaker 2

This should help us clarify our view that evaluating static pool credit performance is a more reliable way to track the progress we continue to make in optimizing our credit risk management and portfolio economics. Processing and servicing costs in Q2 increased 8% year over year to $7,800,000 compared to $7,200,000 in the year ago period. However, as a percentage of origination volume, these costs improved to 0.7% from 0.8% demonstrating another aspect of our operating efficiency as originations increased 37% over that same period. Advertising and marketing costs decreased approximately 28% year over year to $10,700,000 compared to $15,000,000 in the prior year period as we were able to achieve our MTM growth goals at lower levels of spend. This efficiency is reflected in the 26% year over year decrease in CAC to $15 We anticipate increasing marketing investments in Q3 to capitalize on the strong demand we're experiencing and the attractive LTV to CAC returns we're generating on those investments.

Speaker 2

Now looking at compensation and headcount. Our compensation related expenses grew by 2% to $24,500,000 in Q2 from $23,900,000 in the prior year period. However, as a percentage of revenue, compensation expense declined to 31% from 39%, further underscoring the operating leverage inherent in our business model resulting from the investments that we have made in our technology platform. Other operating expenses decreased approximately 16% to $17,000,000 in the second quarter from $20,200,000 in the year ago period, largely due to a $4,400,000 legal settlement related expense in the year ago period. Excluding this impact, other operating expenses grew modestly as a result of overall business growth.

Speaker 2

GAAP net income for the 2nd quarter improved to $6,400,000 compared to a GAAP net loss of $22,600,000 in the year ago period. Beginning this year, we started disclosing adjusted net income or loss, which adjusts our GAAP net income or loss for stock based compensation, changes in fair value to certain non cash liabilities as well as any one time gains or losses such as the $33,000,000 gain on the discounted repurchase of the FTX convertible note during the Q1. With that context, adjusted net income for Q2 was $13,700,000 compared to an adjusted net loss of $15,800,000 in the Q2 of 2023. Adjusted EBITDA for the Q2 of 2024 was $15,200,000 compared to an adjusted EBITDA loss of $13,100,000 during the prior year period. We continue to attribute this improvement to a combination of revenue growth, margin expansion, CAC efficiency and improved operating leverage.

Speaker 2

Our consistent execution has driven adjusted EBITDA profitability for 3 consecutive quarters with a 15% sequential increase from Q1. Looking ahead, we expect to continue to grow adjusted EBITDA profitability, though the trajectory may be non linear as we plan to opportunistically make marketing investments and as the provision for credit losses increases in the back half of the year, given quarter end timing dynamics I mentioned a moment ago. Now turning to the balance sheet. As of June 30, we had approximately $89,700,000 of cash and cash equivalents, marketable securities, investments and restricted cash compared to $101,500,000 as of the end of last quarter. The decrease in cash was driven by an increase in advanced receivables outstanding at quarter end due to higher extra cash originations in the period.

Speaker 2

As of the end of the quarter, our net receivables balance was $127,800,000 an increase of approximately $22,800,000 sequentially. It's important to think about this net receivables balance relative to the $1,200,000,000 of origination volume during Q2, as we believe this underscores our ability to grow extra cash originations capital efficiently given the short duration and high velocity of the portfolio. The amount drawn on our credit facility remained at $75,000,000 as of the end of Q2 as we continue to rely on our balance sheet cash during the Q2 to fund extra cash originations versus our credit facility. Overall, with our strong balance sheet, we continue to believe we have ample liquidity to execute on our growth plan going forward. And now turning to our guidance.

Speaker 2

We're raising the bottom end of our full year 2024 revenue guidance by 5,000,000 to a range between $310,000,000 $325,000,000 representing growth of 20% to 25% compared to the full year of 2023. With regards to profitability, we are raising our full year adjusted EBITDA guidance for the 2nd consecutive quarter to a range between $40,000,000 to $50,000,000 This compares to the guidance we provided last quarter of $30,000,000 to $40,000,000 and our original guidance at the start of the year of $25,000,000 to $35,000,000 Overall, our outlook remains positive and we believe we are well positioned for continued success. And with that, I'll hand it back over to Jason to conclude our call.

Speaker 1

Thanks, Kyle. Our strong performance this quarter reinforces the continued positive trajectory of our company. I'm confident that our team will continue to drive growth and achieve new milestones in 2024 and beyond. Operator, we can now open the call for questions.

Operator

Certainly. And our first question will be coming from Devin Ryan of Citizens JMP. Your line is open, Devin.

Speaker 3

Thanks so much. Good morning, Jason. Good morning, Kyle. How are you?

Speaker 2

Doing well. Doing well. Good morning, Devin.

Speaker 3

Good. So obviously, really nice step up in extra cash volume this quarter, up 13% sequentially, 37% year over year. I know there can be a seasonal bump in the 2nd quarter, but it looks like this was driven by both more originations and then higher average advances. So great to get just a little bit more color around the trends you're seeing with your customer base right now and then more broadly, the ability and comfort to take up the average advance size higher from here?

Speaker 2

Devin, this is Kyle. Thanks again for joining the call. I'd say overall, we're feeling really good just about the overall demand dynamics that we're seeing. I think as you can see in our customer acquisition costs, we're at multiyear lows, despite the ramp up in marketing spend sequentially. We're also seeing really favorable trends with respect to, existing member retention and reactivation of dormant customers.

Speaker 2

So I think just overall the demand patterns are looking really solid at this point and gives us a lot of confidence going into the second half of the year. In terms of overall kind of ability to increase origination size and therefore monetization moving forward. I think we feel very comfortable that we still have room to run there. We rolled out a new model in the Q2 that both allows us to ramp up average advance size as well as lower some our loss rate performance and we're going to continue to lean into that in the second half and feel that there is further upside there as we move through the rest of the year.

Speaker 1

And Devin, just to add to that real quick, we're able to do this because of the high velocity nature of the product. As you know, the average amount of people use extra cash for is around 10 days. And so we're able to test and learn on those new models so rapidly that we can gain a lot of confidence so quickly compared to traditional credit providers that have to wait a long time on their vintages to season.

Speaker 3

Terrific. Thank you. And then a question on the CFPB proposal announced in July. You obviously issued a press release around your position, so we'll have to see how it all plays out. But if we were to play out a scenario where there are changes to the regulatory framework for the industry, and I think on one hand, you have CFPB, which on overdraft could be really positive.

Speaker 3

It feels like if the large banks have to lower overdraft fees and there was a Wall Street Journal article in early July talking about the impact on that. So I'd love to maybe get a little color there. But then on the more recent proposal, it would seem to squeeze a number of marginal players in the space. So I just want to think about some of the levers at your disposal around the monetization model And then maybe the elasticity of pricing to the extent there is any changes on that front. So kind of maybe touch on both proposals and kind of the implications on the business since there's a lot for I think the market to unpack right now.

Speaker 3

Thank you.

Speaker 1

Yes. Great question, Devin. So on the first part around the proposed overdraft regulation, we think we sit in a really good spot there just given our lower cost to serve. As we pointed out for the first time in our supplement, how much lower our cost to serve is compared to a traditional bank. And that Wall Street Journal article you're mentioning specifically references how much it costs the banks to operate, which means they have to charge a certain amount of fees just to breakeven on a checking account.

Speaker 1

By our calculation, it's about $300 per year for a major bank to break even on a basic checking account. Therefore, they have to make up for that with minimum balance fees, overdraft fees. And so if overdraft were to go away or be significantly limited, prices have to go up in different areas. And so we think that continuing to lean in on our lower cost to serve puts us in a significant advantage to have lower fees yet still have great gross margins as we have today. On the proposed EWA, yes, we did issue a statement that we don't believe are subject to this rule.

Speaker 1

If it were to become effective, we feel very strongly in our position as an overdraft product similar to traditional banks, albeit at significantly cheaper fees. And if the rule were to pass, yes, I agree that it could squeeze some players out there that are continuing to offer unlicensed credit that is not regulated. Dave is a federally regulated overdraft product and we spent a lot of time developing and building our business in a very compliant way leading up to going public.

Speaker 3

Thank you, Jason. I mean, can you maybe just hit on the price elasticity as well just the overall platform? So I think that plays in here too that there's potentially other levers around the business model that the world wouldn't stay static.

Speaker 2

Yes. Devin, this is Kyle. Just to jump in here. I think what we've shown and what our results have shown is that there is a high willingness from customers to pay for the product that we offer. And I think that given the evolving landscape, we have flexibility should we need to evolve what we're doing from a pricing standpoint.

Speaker 2

So I'd kind of just point back to the ARPA trends that we've seen over the past, call it 6 quarters as we continue to ramp up origination size, monetization has also increased and I think that just points to the fact that customers are willing to pay for what we're offering and that gives me a lot of confidence that we can continue to operate effectively sort of regardless of what happens within the broader kind of regulatory landscape.

Speaker 1

Yes. I would say to just add to that, we do Mike the optional optionality within our fee structure, which we can continue on today with our model. But should we be pressed there, we could always move to a mandatory fee model similar to traditional banks and just charge significantly lower fees than the incumbent. So either way, we think there's a lot of flexibility in the pricing to reach our desired ARPU level, which we feel very confident to continue moving forward.

Speaker 3

Okay. I'll leave it there, but thank you guys very much. Appreciate it.

Speaker 1

Yes. Thanks, Devin.

Operator

One moment for our next question. And our next question will be coming from Jeff Cantwell of Seaport Research. Jeff, your line is open.

Speaker 4

Hey, great. Thanks, guys. There were 4 areas I wanted to touch on. These are medium term questions. First, on revenue growth, that was 31% this quarter.

Speaker 4

It came in above the expectations. Can you talk about thinking further out how sustainable is, call it, 20% revenue growth? What your thoughts are there? 2nd is on adjusted EBITDA. It looks like you're firmly profitable here at 3rd to 2nd quarter positive adjusted EBITDA.

Speaker 4

When we drill down, again, we can see the visibility expense was a little bit below, but you're also talking about the remainder of the year. So can you help us understand how sustainable you think it is in terms of positive adjusted EBITDA over the next call it several quarters and what the major call outs are there? And then I have some follow ups. Thanks.

Speaker 1

So, hey, Jeff, good morning. Look, I think we feel very confident in our ability to continue to deliver 20% plus growth for many quarters and hopefully years to come. And so the 31% growth for the quarter was tremendous. We have to continue that. We're not committing to 30 plus percent growth, but we feel that the company can continue on at a very healthy trajectory at these levels and supported by our low cap levels as well.

Speaker 1

As far as the continued EBITDA, I think Kyle mentioned in his script that we plan to continue on as a positive EBITDA company. There may be some fluctuations in that based on marketing trends. We may take advantage of some increased marketing tip to take advantage of the demand. But overall, we do want to maintain positive EBITDA moving forward to the company here on out and not have to access any additional capital.

Speaker 4

That's great. Super helpful. 3rd is on EVOLVE and your bank partners. Clearly, in order to talk about the first two areas you just discussed, revenue and profitability, that's supposed to be a view into how things are going to be maintained opportunistically going forward. So can you comment on your relationship with Vault?

Speaker 4

Maybe talk about whether there's any contingency plans in place for us to find a new bank partners over time in the event something would happen that would change that relationship? Thanks.

Speaker 1

Yes. So we noted in the call that we are evaluating a second bank partner. We'll report back when we made material progress on our negotiations. We think that we are a very attractive partner opportunity for many of the qualified sponsor banks that are out there. There are several of them that have approached us and conversations are ongoing at this point.

Speaker 1

I just want to note that because of our established risk and compliance programs, we feel very well suited to be an attractive partner for these new firms.

Speaker 2

And just to jump in there, I would also just say that our relationship with Evolve is still positive and healthy. Nothing about what sort of happened with the consent order there and there's some of the other challenges that they're facing as it impacted our business. We have a close relationship with their leadership team over there and are continuing to work positively in that partnership. So the second bank is really just a risk mitigation step that we're taking, but nothing about the business has been impacted in any capacity to date.

Speaker 1

I would just add that the risk mitigation has been part of the plan for quite some time. These bank conversations have stemmed from last year. This is nothing reactionary from the most recent news. As we noted in the call, we've reached a significant customer scale at this point of 2,300,000 paying members and it just is the right decision for risk to have some redundancy set up just in

Speaker 4

case. Okay, great. And then lastly, just a follow-up on Devin's question. On regulation, again, can you give us more color on your thoughts about the CFPB's ruling? It seems like certain areas like tips are coming into focus, the all in costs are in focus.

Speaker 4

Can you comment on those areas in terms of what your position is and how that might play out for yourselves over time? Thanks.

Speaker 1

We feel confident in our ability to keep offering the fees that we have. They're completely optional and they're also within an overdraft program as we set up the program as an overdraft product similar to how major banks are offering overdraft as well. So we don't think this ruling does apply to us. We think that the callouts they have around tipping seem mostly aimed at people that are forcing tipping on customers, which we have never done as a business. There are several firms out there that require you to disclose your tip ahead of being approved for credit or condition your credit approval based on how much you tipped last time.

Speaker 1

We do nothing of the such. And so I'm actually a fan of seeing regulation around that piece because there is and has been some nefarious activity, which is disappointing because tipping is in an optional state is a great way to monetize customers as many people can choose to pay when they can afford it and access it for free when they can't.

Speaker 4

Okay, great. Thanks for the color guys. Appreciate it.

Operator

Yes. Thanks, John. One moment for our next question. Our next question will be coming from Jacob Stefan of Lake Street Capital Markets. Your line is open, Jacob.

Speaker 5

Hey, guys. Thanks for taking my questions. Congrats on the quarter here as well. I just kind of wanted to start out with the yes, absolutely. I just kind of wanted to start out with the customer acquisition costs.

Speaker 5

And obviously, you guys said that you're not seeing any impact from the election. But maybe what is it that you're doing differently here to kind of see that cost effectiveness in new customer adds?

Speaker 1

Well, we are continuing to see positive trajectory in our word-of-mouth. That's been our largest form of acquisition since the beginning of the business. We also see that we're doing very well across our channel distribution. In the beginning of the company, we were quite focused on just word-of-mouth and a couple of digital channels. Now we are everywhere from TV, streaming, all the social channels, search, affiliate.

Speaker 1

We have a very healthy distribution of all of our marketing dollars and it's given us a lot of confidence to spend moving forward with seeing this reduction in CAC, which is not typical for a growth company at this stage.

Speaker 5

Got it. And maybe, Kyle, I think you pointed out that in Q3 here, we could see some elevated marketing spend, but maybe help us kind of size the magnitude of the increase.

Speaker 2

Yes. Look, I think we haven't provided specific guidance on what the sort of elevated level of marketing spend will be on a sequential basis or 2H relative to 1H. I wouldn't expect anything overly dramatic, but just sort of healthy kind of quarterly ramping, maybe consistent with what we saw last year as we kind of work through the rest of the calendar from at least from Q2 to Q3, just kind of taking advantage of the more attractive demand environment over the summer periods with the go to market message there. But I'd say overall, what's really driving our decision making around increasing marketing is just the LTV to CAC trends that we're seeing. Our payback periods on a gross profit basis at this point are in the 4 to 5 month range, which is really attractive.

Speaker 2

And we're just leaning into that opportunity to drive attractive returns on ad spend. So I hope that helps to answer your question.

Speaker 5

Yes, that makes sense. Just one last one for me here. Maybe just give us some more color kind of on the updated pricing on the subscriber plans. I know this has been a focus in the past, but any update there would be helpful.

Speaker 1

So no official update. We're still evaluating the test results and don't have a firm timeline for a full rollout. It's important to note though that's not in any of our guides. It's not modeled in any upside. So we're continuing to test, but nothing firm.

Speaker 5

Okay. Got it. Thanks guys.

Speaker 2

Thanks a lot.

Operator

And one moment for our next question. And our next question will be coming from Gary Prestopino of Barrington. Your line is open.

Speaker 6

Hi, good morning, Jason.

Speaker 1

Couple of questions here. Could you maybe

Speaker 6

discuss the attach rate of the extra cash to the Dave card in terms of what you're seeing out there sequentially and year over year in terms of improvement?

Speaker 2

Sure. Gary, this Kyle. Happy to take the question and thanks so much for joining this morning. So we don't disclose this explicitly, It's been relatively consistent, I'd say, over the last 2 to 3 quarters. And we do have some product development stacked against that opportunity later this year that we hope to drive further attach rates there, which our view is that there's an opportunity there just to help kind of further drive card adoption as well as increase the penetration of direct deposit within our overall MTM base.

Speaker 2

So hopefully some more to come on that strategy and performance there later this year, but yes, the attach rates are roughly 30%.

Speaker 1

And we do see definitively that when customers do attach to the Dave card that retention does go up on those customers. So our strategy is playing out well there and we want to find more ways to get people to adopt the card and then ultimately direct deposit.

Speaker 6

And retention is going up, but obviously transaction should rise commensurate as well, correct?

Speaker 2

Yes, transactions and overall ARPU. So, it's a really healthy opportunity for us to go after as it just increases lifetime value from both a retention and monetization standpoint. So, yes, something we're really focused on and again have some product development stacked against that later this year that we're optimistic about.

Speaker 6

Could you also comment on your progress on direct deposit of paychecks to the day card?

Speaker 1

We don't disclose direct deposit penetration. We feel there's a lot of room to run on that metric still. But extra cash to card is a good way for us to drive that initial trial of the card and ultimately a good proxy to see how we're doing as direct deposit, just to keep monitoring how we're doing on total transaction growth as you see a lot of a lot more a higher percentage of people from direct deposit would be adding up in that total monthly DA card spend.

Speaker 6

Okay. And then just lastly, you talked about rolling out a new underwriting model that's improved your loss ratios. Could you maybe just I know directionally, you're not going to tell us exactly what you did, but directionally, do you talk about where the proof points of this new model are benefiting you?

Speaker 2

Yes. I mean, I think it just shows up in our 28 day loss rate performance, Gary. As you can see year over year, we continue to drive down those loss rates, which ultimately just drive the economics of the portfolio. So in the context of both the rising average revenue per origination as well as the reduction in the 28 day loss rate and ultimately our 120 day charge off rates, it's a really kind of powerful equation there as we're able to sort of drive both sides of that equation by further optimizing the model. So, I'd say I'd point to those as the kind of proof points of how we're doing and the effectiveness of the strategy and the execution from the team.

Speaker 6

Yes, I asked the question wrong. I guess what I'm trying to get at is what's changed in focus of what you're doing? Maybe just to give us an idea of how you've tweaked this. Can you talk about that?

Speaker 2

I'd say it's just the addition of new data points into the model. We've added substantially more just data points into the overall model. I think that just allow us to better risk split within the portfolio. And I'd say that's all we're willing to share at this point is just the introduction of more data points.

Speaker 6

And then just one last question. But it's

Speaker 2

largely the same sorry, Gary, just to add to that, it's largely the same approach, just I'd say a more robust and comprehensive model versus the prior versions.

Speaker 6

And then, I think in the discussions with you that you were testing with giving individuals who have higher credit rating risk parameters, more bites at the apple for extra cash. I think you're allowed 1 every 2 weeks. And is that starting to gain a little bit of traction? Or can

Speaker 1

you tell us how that testing is working? Yes. So we've had an ongoing initiative here to give our higher we don't use credit score as a proxy, but sort of our internal scoring based on their transaction data that our highest quality customers were giving access to a little bit additional credit with if they need it within the same paycheck period. And that is working quite well. We're seeing increased ARPU on those customers, and increased levels of retention.

Speaker 1

So overall, it's been a great strategy. We're not yet to 100% rollout. We plan to do so hopefully by the end of the year. Okay. Thank you.

Speaker 2

Yes. I think just Gary to that point, what we would expect the impact to be is just higher average origination size per customer and that driving average revenue per origination up as well. So just upside from a monetization standpoint there.

Speaker 1

Okay. Thank you. Thanks, Gary.

Operator

And this concludes the question and answer session as well as today's program. Everyone have a great day. You may now disconnect.

Powered by Quartr
Earnings Conference Call
Famous Dave's of America Q2 2024
00:00 / 00:00